Does raising import tariffs and focusing on 'Atmanirbhar Bharat' by offering incentives to multinationals to set up manufacturing in India help the country grow fast? And is that behind the sort of economic growth we’ve been seeing since, er, we went 'vocal for local'?
An emphatic 'no' is the answer, if you’ve directed that question to Rahul Ahluwalia, ex-NITI Aayog and co-founder of the Delhi-based think-tank, Foundation for Economic Development. Ahluwalia is of the firm belief that even if the scheme of things may otherwise be in favour of it, the government needs to reverse the thinking that high tariffs can cut down imports and make us self-sufficient and build an industrial economy.
"A tax on imports is a tax on exports!", he exclaims and proceeds to give the anecdote of how India has placed anti-dumping duty and tariff barriers against synthetic fibres. Ostensibly to protect conventional cotton farmers and the like is the reason given, but it has helped the big industrialists who manufacture these synthetic fibres in India. The restrictions on imports help them to overcharge the end-manufacturers of synthetic garments, in turn making prices go up. The result? India’s synthetic garment industry became uncompetitive to the rest of the world and found few takers for exporting them!
“70% of the world’s garment exports are synthetic. Being labour-intensive, the garment industry could have produced the maximum number of jobs in India. But due to these tariffs, not only did the domestic synthetic garment industry not evolve as it should, India is today no competition in the international market!"
Ahluwalia adds, "India just can’t compete because we kept duties high on one product! This is true in other things as well, like steel, copper, electronic exports etc!"
He has a point. Since independence, India kept its domestic industry protected for a long with high import duties and other barriers. Yet, it was the relaxing of these restrictions back in 1991, now celebrated as 'liberalisation' that truly unfurled the country’s growth story.
Now Ahluwalia feels we are at it again with import duties and offering global biggies a way around through production-linked incentives (PLI). "Big companies don't go to some place to manufacture because we offer them that we'll raise up tariff walls and unless you enter our tariff walls (using PLI, you won’t be able to) set up. In fact, if anything, this reduces the confidence that companies have!"
Ahluwalia feels such protectionist measures stem from the mistaken notion that India considers itself to be a big market — which, he says, is not correct from a per capita or spending power parameter.
"So if we genuinely want to encourage people to move here in a big way, if we want to become a domestic manufacturing powerhouse, what we have to do is transform the local ecosystem. We have to provide an ecosystem in India that is competitive with the ecosystem in Vietnam or China. If we can’t provide a world-class experience, raising tariffs is not going to do it. In fact, it's going to be counterproductive."
So how does India pivot and still aim for Viksit Bharat 2047? Ahluwalia’s solution is simple — Trade.
"The only way to grow is exports. Until and unless we become export competitive, we cannot grow fast," he says, offering with another anecdote: "Take two villages somewhere in India. Will you tell them, do something about your consumption within your village, and that's going to help you suddenly become rich? No! You tell them, look, find a way to trade with the city near you, create some products that you can send to the city, and that's what's going to raise your standard of living!"
"Any country that has grown fast, did it through exports. There is not a single exception to this rule," he argued, signing off, "We should try our best to accelerate services export to the extent that we can. And do something about our manufacturing exports as well. The only thing we can do is be competitive with other countries."
